Will churches experience a decline in giving because of the newly signed Tax Cuts and Jobs Act? Some fear that the doubling of the standard deduction will result in fewer parishioners who will itemize their deductions. Charitable donations to churches are itemized expenses.
Standard Deduction and Donations
The new tax law increases the standard deduction:
- $6,350 to $12,000 for individuals and married couples filing separately,
- $9,350 to $18,000 for heads of household, and
- $12,700 to $24,000 for married couples filing jointly.
Why is this an issue? People tend to itemize if their deductible expenses are higher than the standard deduction.
Some charitable organizations are concerned that people will have less incentive to give if their itemized expenses are lower than the standard deduction. Also, the new cap on itemizing state and local tax deductions may lead more people to take the standard deduction rather than itemize.
It is quite possible that churches would see less of an impact than other nonprofit organizations where tax considerations may have more influence on church giving. For churches that teach tithing as an act of worship, tax benefits of giving will likely be a secondary consideration.
Lower Taxes and Donations
On the other hand, some believe that churches will benefit from another change in the tax code. While there are still seven tax brackets for individuals, the rates have changed and are lower. Most church members will receive an increase in their take-home pay starting in February 2018, resulting in a greater capacity to give in 2018.
While other charities may speculate that the increased standard deduction will decrease the incentive to give, most church members give out of their religious beliefs rather than some perceived tax benefit.
Despite the predictions of some that the higher standard deduction for individuals and lower rates will result in decreased charitable contributions, churches and other nonprofits can still hope that the economic impact of the tax reductions, together with economic growth, will spur an increase in giving.
Churches and religious institutions may be Godly sanctuaries, but they are run by very human people who often juggle many roles and responsibilities. When it comes to financial planning, budgeting and dispersing, financially sound churches do it with the guidance of a qualified professional.
Charles P. Myrick is a Washington, DC accounting firm offering specialized CFO services to churches and religious institutions. Myrick CPA was voted Best Accounting Firm in DC, 2016 and 2017, Washington City Paper Readers’ Poll. Request a confidential consultation, today.